School Board Approves Sale of PPEL Notes and Refunding Bonds

April 4, 2013

Senior Vice President and Investment Banker, Matthew Gillaspie, from Piper Jaffray in Des Moines met with the Emmetsburg school board on Thursday to review and approve the sale of PPEL notes and refunding bonds. The PPEL notes will fund costs of approximately $2.8 million when combined with other cash or grant funds on hand for the West Elementary Construction and renovation.

"We were asking the bidders to bid on $1,560,000 of PPEL notes which were later re-sized to $1,615,000," said Gillaspie. The lowest bidder was UMB of Kansas City in conjunction with Iowa Trust and Savings of Emmetsburg. The interest rates they assigned ranged from .3%-1.35% through 2021. "The way we determine which interest rate is the best is by the true interest rate which was 1.036% (for UMB)," said Gillaspie.

A total of seven bids were received with true interest rates ranging from 1.036% to 1.64%. "The bid in last place knew that's not the market. They were just hoping they might be the only person to bid today and make a lot of money off of the transaction," said Gillaspie. "The difference between that low bid and the high bid to you, out of your picket is about $45,000."

"Some bids assigned much higher interest rates which may seem unusual but it's not. Basically they were going to be willing to pay you more cash up front and you would have paid a higher interest rate over time versus the lower bids where they didn't pay you as much cash up front but you were paying much lower interest rates over time. It doesn't matter how they structure it, it's what's the best mathematical thing for the school and that's what that true interest rate does. It factors in the time value of that plus the fees, etc, so we know that UMB was the best bid," explained Gillaspie.

The resolution to direct the sale of $1,615,000 of general obligation school capital loan notes to United Missouri Bank of Kansas City was approved by the board.

Bids were also taken for $5,185,000 of general obligation school refunding bonds, which was later re-sized to $5,130,000. "The same bidder won this one as well," said Gillaspie. "UMB, bidding with Iowa Trust and Savings had very similar interest rates except these go out a little bit further because your existing bond payments go out a little bit longer in the future."

The true interest rate is 1.77%. "You can't compare that to the PPEL notes because this borrowing goes through 2027 and the PPEL notes were for a shorter period of time so that winning bid is going to be different because of that," said Gillaspie.

Payments will begin in 2017. The school will be replacing old bonds at a flat 4% interest rate with .6-2.2% rates and will be saving $434,837 from the refinancing. "You won't see any of it until the fiscal year 2017 because you will keep making the old bond payments until then but then your bond payments are going to drop about $40,000 a year," said Gillaspie.

The resolution to direct the sale of $5,130,000 of general obligation school refunding bonds to United Missouri Bank of Kansas City, Missouri was also approved by the board.